I was reading Sim Segal’s book “Corporate Value of Enterprise Risk Management.” In the second chapter he attempts to define risk. He is apparently a “thought leader” on ERM, so I hoped he would be a good place to start (plus I was required to read the book).

Segal attempts to include upside events, that is events with positive impacts, in the definition of risk. He does this in explicit contradiction to the ordinary definition of risk. He gives several examples of how upside events are actually risks. They can all be understood within the context of accidental vs. essential risks.

An upside event is only a risk accidentally. That is there may be evils associated with an upside event in only an accidental way. An upside event may be a risk only insofar as it is not good enough to offset some downside event. The aggregate risk is the loss due to the mismatch. The upside event is only accidentally a risk, whereas the aggregate risk is essentially a risk, that a future uncertain evil.

It seems that what Segal is attempting is to define risk in light of a developed system of ERM. That is he has a way of managing risk and upon writing a book seeks to develop the foundations having construct the rest. The problem is that risk is what it is and talking about risk as not risk is incoherent. The correct procedure is to realize that Enterprise Risk Management involves analyzing and understanding more than risk. This is of course speculation of Segal’s procedure, but it appears that way at least.